Even Steven for Nordic CTAs in Mediocre May

May proved a difficult month for Nordic CTAs and systematic trend-following strategies, as markets were characterized by sharp reversals and elevated cross-asset volatility that confounded directional positioning. The NHX CTA Index closed the month essentially flat, with profits generated in currency and equity positions sufficient to offset losses sustained in energy and soft commodity allocations. The divergent performance reflected a market backdrop where traditional momentum signals broke down across major asset classes, leaving managed futures managers reliant on their specific commodity tilts and sub-strategy positioning to determine overall returns.

Equity markets delivered the most coherent directional move, with U.S. stocks advancing to record highs on the back of a robust jobs report and an exceptional rally in semiconductor stocks. However, this strength proved largely isolated to domestic equities. Fixed income markets faced significant headwinds as geopolitical tensions surrounding the Iran war triggered concerns about persistent inflation, causing global government borrowing costs to spike sharply. The 30-year U.S. Treasury yield reached its highest closing level since 2007, a dramatic shift that reversed only modestly by month-end as sentiment shifted.

Currency markets were similarly whipsaw-prone, with the U.S. dollar executing what the article characterizes as "yet another U-turn." The dollar ultimately drifted higher as economic divergence widened between the United States and other developed economies, Iran-related geopolitical risk premiums persisted, and inflation data exceeded expectations. This stronger-than-anticipated inflation data added fuel to speculation that the Federal Reserve might ultimately pivot away from expected rate cuts toward potential rate increases. Commodity markets remained particularly directionless, with oil and gold prices experiencing wild swings tied directly to evolving U.S.-Iran negotiations. Soybean markets similarly struggled to establish direction, remaining highly reactive to developments in U.S.-China trade discussions and shifting biofuel demand patterns.

For Nordic trend-following managers, the month's outcome underscored the challenge of trading in non-trending, mean-reverting market conditions. The continuing gyrations in TSMOM signals, as measured by RPM's Market Divergence Index, hovered around long-term average levels, indicating that momentum strategies faced neither tailwinds nor significant headwinds on average. However, constituent manager performance varied considerably based on their respective exposures to commodities and other volatile asset classes, with some benefiting from currency and equity gains while others suffered from energy and soft commodity losses.